Kiwi dollar falls as CPI drops 0.2% in December quarter

CPI falls 0.2 percent in December quarter, NZ dollar
plunges

Jan. 18 (BusinessDesk) - The consumer price
index (CPI) fell unexpectedly by 0.2 percent in the last
three months of last year, raising the likelihood of either
a central bank interest rate cut or a longer period of
current historic low interest rates.

The New Zealand
dollar immediately fell on the announcement at 10.45 am to
83.52 US cents from 84.15 cents just prior to the
release.

Market expectations had been for a 0.1 percent
increase. The annual inflation rate for calendar 2012 was
0.9 percent, up from 0.8 percent in the year to
September.

That means inflation continues to fall just
below the bottom end of the Reserve Bank of New Zealand's
statutory target range of 1 to 3 percent annually over the
medium term under its Policy Targets Agreement with the
government and may increase pressure for a cut to the
Official Cash Rate.

Current conventional wisdom is that
the RBNZ will not cut the OCR again, but is unlikely to
raise it from its current historic low point of 2.5
percent.

The result showed ongoing pressure in the less
competitive, non-tradable parts of the economy, such as
local body rates and electricity prices, where inflation
rose by 0.3 percent in the quarter.

That was offset by a
0.7 percent fall in tradable sector prices, influenced most
directly by falling food prices, with a 53 percent drop in
tomato prices a key component.

"The CPI has fallen in four
of the past five December quarters, the exception being
2010, after the GST increase," said Statistics New Zealand's
prices manager Chris Pike.

Lower prices for food, down 1.8
percent, household contents and services, which fell 1.8
percent, and communications costs, down 2 percent in the
quarter all contributed to reduction.

The primary
contributors to increased prices were housing and household
utilities, where property maintenance services were up 2
percent owing to seasonal impacts on government subsidies
for insulation and heating, rents up 0.3 percent, and the
price of newly built houses, up 0.5 percent.

Seasonally
higher international airfares, which rose 9.8 percent in the
quarter, were a key factor in higher transport prices in the
quarter.

Annually, the largest increases were in
cigarettes and tobacco, up 13 percent after excise tax
increases, a 2.4 percent upward movement in housing rentals,
and a 5.2 percent increase in electricity prices.

Major
offsets to this were a 5.7 percent annual drop in the cost
of telecommunications services, a 17 percent fall in
audio-visual equipment prices, and fresh milk, down 9.5
percent.

Statistics NZ also announced the formation of a
periodically convened advisory group to consider changes to
the composition of the primary indicator of price movements,
which is used by the Reserve Bank of New Zealand in setting
monetary policy and the Official Cash Rate.

Some market
participants have been calling for a move from quarterly to
monthly inflation statistics, which the government agency
has so far resisted on grounds that it is already
under-resourced for the range of statistical series it
compiles.

"Frequency of the CPI compilation will
definitely be one of the issues and topics," Pike told this
morning's media conference.

The nine member group
will be chaired by the former Retirement Commissioner, Diana
Crossan.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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